- Weekly jobless claims increase 4,000 to 235,000
- Continuing claims advance 51,000 to 1.375 million
- Announced job cuts jump 57% to 32,517 in June
- Trade deficit narrows 1.3% to $85.5 billion in May
WASHINGTON, July 7 (Reuters) – The number of Americans filing new claims for unemployment benefits unexpectedly rose last week and there are growing signs that demand for labor is cooling, with layoffs surging to a 16-month high in June as the Federal Reserve’s aggressive monetary policy tightening stokes recession fears.
But the weekly jobless claims data from the Labor Department on Thursday was likely distorted by Monday’s Independence Day holiday, which resulted in several states, including California, submitting estimates. Nevertheless, the labor market is losing momentum.
“This is what the Fed wants, but it needs to be orderly to avoid an increase in recession risks,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
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Initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 235,000 for the week ended July 2, the highest level since January. Economists say claims need to rise above 250,000 on a sustained basis to raise concerns about the labor market’s health.
Unadjusted claims increased 11,919 to 219,507 last week. Claims for California, which saw a big jump in applications, were estimated as were those for Connecticut, Kansas, Louisiana, Nebraska, Tennessee and Virginia. There is a chance the data will be revised next week.
Claims could become even more volatile in the weeks ahead. Automobile manufacturers typically close assembly plants for annual retooling after the Independence Day holiday, which is anticipated by the seasonal factors, the model that the government uses to strip out seasonal fluctuations from the data. But a global semiconductor shortage has forced manufacturers to adjust their schedules.
This could lead to fewer temporary layoffs and result in lower seasonally adjusted claims.
Economists polled by Reuters had forecast 230,000 applications for the latest week. Claims have been bouncing around the 230,000 level since the beginning of June, underscoring the labor market’s strength even as some companies in the housing and technology sectors have been cutting jobs.
Tesla (TSLA.O) has laid off hundreds of American workers.
“The risk is for further increases in claims as economic growth slows, but we don’t anticipate a sharp rise in new claims,” said Nancy Vanden Houten, lead US economist at Oxford Economics in New York. “While anecdotal reports of layoffs are increasing in some sectors, labor markets remain quite tight and demand for workers is still historically high.”
There were 11.3 million job openings at the end of May, with 1.9 jobs for every unemployed person. read more
Stocks on Wall Street were trading higher. The dollar dipped against a basket of currencies while US Treasury prices fell.
EXPORTS TO THE RESCUE
The Fed in June raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994, as it fights inflation. Another similar-sized rate hike is expected this month. The US central bank has increased its benchmark overnight interest rate by 150 basis points since March.
The number of people receiving benefits after an initial week of aid jumped 51,000 to 1.375 million during the week ending June 25, the claims report showed. That was the largest weekly rise in the so-called continuing claims since November.
The gradual slowing in demand for workers was reinforced by a separate report from global outplacement firm Challenger, Gray & Christmas showing layoffs announced by US-based employers surged 57% to 32,517 in June, the highest since February 2021.
Job cuts increased 39% to 77,515 in the second quarter from the January-March period. But layoffs in the first half of the year were the lowest since 1993.
In June, job cuts accelerated in the automotive, consumer products, entertainment, financial and real estate sectors.
The loss of speed in the labor market could be confirmed when the government publishes its closely watched employment report for June on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 268,000 jobs last month after rising by 390,000 in May.
Amidst the anxiety about the economy, there was some good news on the international trade front. A third report from the Commerce Department showed the trade deficit narrowed 1.3% to a five-month low of $85.5 billion in May. Exports increased 1.2% to a record high while imports gained 0.6%.
Economists estimated that the shrinking trade deficit could add at least one percentage point to gross domestic product, and help avoid another quarterly contraction in output. Second-quarter GDP estimates range from as low as a 1.9% annualized rate of decline to as high as a 1.0% pace of growth.
A record trade deficit weighed on the economy in the first quarter, resulting in GDP declining at a 1.6% rate. Trade has subtracted from GDP for seven straight quarters.
“The US economy has lost momentum, but is not currently in recession,” said Bill Adams, chief economist at Comerica Bank in Dallas. “However, another big negative shock would probably be enough to push us into an outright recession this year or next.”
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Reporting by Lucia Mutikani; Editing by Paul Simao
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